Policy limits and deductibles on the Texas All-Lines exam

High-yield rules

Practice questions

Written the way the examination builds items. Answer before opening the explanation.

1. Question 1

   For this exercise, the policy requires applying each category’s special limit, adding the covered amounts, and then subtracting one deductible. A theft loss includes $3,000 of furniture and $4,000 of jewellery. The personal property limit is $60,000, the jewellery theft limit is $1,500, and the deductible is $500. With no scheduling endorsement, what is payable?

   1. A$4,000
   2. B$6,500
   3. C$7,000
   4. D$2,500
   Show answer and reasoning

   Correct answer: A — $4,000

   The furniture draws on the general personal property limit and is payable at its $3,000 value. The jewellery is capped by the $1,500 special limit for theft rather than the $60,000 general limit, so the jewellery contributes $1,500 rather than $4,000. That produces $4,500 before the deductible, and subtracting $500 leaves $4,000. The $6,500 choice comes from ignoring the special limit, and $7,000 comes from ignoring both the special limit and the deductible.

2. Question 2

   For this exercise, the policy expressly requires capping the covered loss at the applicable limit before subtracting the deductible. A covered windstorm loss to a detached workshop is $22,000. The dwelling limit is $250,000, the applicable other structures limit is $15,000, and the deductible is $1,000. What is payable?

   1. A$14,000
   2. B$21,000
   3. C$15,000
   4. D$22,000
   Show answer and reasoning

   Correct answer: A — $14,000

   The stem expressly makes the other structures limit applicable and requires capping before the deductible. Under that supplied formula, cap $22,000 at $15,000 and subtract $1,000 for $14,000 payable. The $21,000 choice ignores the applicable cap, and $15,000 omits the required deduction. A different limit/deductible clause can produce a different result.

3. Question 3

   For this exercise the policy defines payment as the lesser of the covered loss after the deductible and the applicable limit. A detached workshop has $22,000 of covered damage, a $15,000 applicable limit, and a $1,000 deductible. What is payable?

   1. A$14,000
   2. B$21,000
   3. C$15,000
   4. D$22,000
   Show answer and reasoning

   Correct answer: C — $15,000

   Apply the formula actually supplied: $22,000 minus $1,000 is $21,000; the lesser of $21,000 and the $15,000 limit is $15,000. Do not assume every policy applies limits and deductibles in the same order. This original, source-mapped item is provided for concept practice and is not recalled exam content.

Frequently asked

How can I tell when a special limit applies?

The fact pattern will describe a property category that policies commonly cap, such as jewellery, furs, currency, or securities, and a well-built question states the special limit. If a category cap is stated, it controls over the general limit for that property.

Can scheduling change a special limit?

Yes. Separately scheduling high-value property by endorsement is the standard way to obtain coverage above an internal special limit. If the question states that property was scheduled, the scheduled terms govern rather than the internal cap.

Does the deductible apply per item or per loss?

Read the policy language in the fact pattern. Property deductibles are commonly applied per occurrence rather than per item, and applying one deductible to each damaged item is a frequent distractor construction.

Key terms on this topic

• Policy limitA policy limit is the maximum amount an insurer will pay for a covered loss under a particular coverage, stated on the declarations page.
• DeductibleA deductible is the amount of a covered loss the insured absorbs before the insurer pays, which keeps small claims out of the system and holds premium down.
• Personal property coveragePersonal property coverage insures the movable contents belonging to the insured, subject to its own limit and to special limits on certain categories of property.
• Other structuresOther structures coverage insures structures on the residence premises that are separated from the dwelling, such as detached garages, fences, and sheds, subject to its own limit.
• Dwelling coverageDwelling coverage insures the residence structure itself, including materials and fixtures attached to it, up to the dwelling limit shown on the declarations.
• EndorsementAn endorsement is an attached form that modifies the base policy by adding, restricting, or clarifying coverage, and it controls over conflicting language in the form it amends.

Distinctions worth drilling

• Coinsurance vs. DeductibleBoth coinsurance and deductibles reduce what an insurer pays, which is why candidates confuse them. They operate on entirely different logic and at different points in the calculation.

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• Coinsurance and commercial property valuation on the Texas All-Lines examThe coinsurance formula, why it penalizes underinsurance on partial losses, and the order of operations the exam expects.
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